Licence for use - subletting property
Discussion
I am arranging to let part of a property from somebody who is leasing the whole property. I agreed with the occupier that I would sign a lease for the space I need. I went to negotiate the lease with him today and he says he wants a licence for use instead. I've done all my research based on getting a lease, this licence is new to me.
The occupier says we can negotiate all the terms of the licence and sign before I move in. A friend told me that licences for use are normal when subletting property (the occupier has a lease with the landlord).
Is it normal business practise to rent using a licence rather than a lease? I am a complete novice to this. I'm not going to get a lease from the occupier (he says the "stamp" costs money. Should I carry on with a licence or start looking for new premises? I don't get a bad feeling from the occupier but I wish he'd mentioned the licence before now.
The occupier says we can negotiate all the terms of the licence and sign before I move in. A friend told me that licences for use are normal when subletting property (the occupier has a lease with the landlord).
Is it normal business practise to rent using a licence rather than a lease? I am a complete novice to this. I'm not going to get a lease from the occupier (he says the "stamp" costs money. Should I carry on with a licence or start looking for new premises? I don't get a bad feeling from the occupier but I wish he'd mentioned the licence before now.
A licence is slightly different to a lease and offers you slightly different rights of occupation as a result. One of the likely reasons for an occupier suggesting a licence is that they are probably trying to slide the 'under letting' in without landlord consent! Most leases contain provision for restricting the under letting to the whole property and not part only. Might be worth checking as the head tenant may be in breach of their lease if they are attempting to under let part of the property and this is not consented.
Otherwise licences can be a popular route to letting property, particularly if its shorter length terms (a licence can not be more than 3 years in duration).
Otherwise licences can be a popular route to letting property, particularly if its shorter length terms (a licence can not be more than 3 years in duration).
Thanks for the help. The space will be used to operate a business under a limited company structure.
Tim, I think you might be right about the reason for the occupier's use of a licence versus a lease. If my licence isn't based on a working lease above me I suppose that would make my licence invalid, leaving me with no recourse if anything goes wrong.
In the short term it wouldn't be a big deal to work without the landlord's knowledge, but eventually s/he is going to find out.
Tim, I think you might be right about the reason for the occupier's use of a licence versus a lease. If my licence isn't based on a working lease above me I suppose that would make my licence invalid, leaving me with no recourse if anything goes wrong.
In the short term it wouldn't be a big deal to work without the landlord's knowledge, but eventually s/he is going to find out.
The point I'm trying to establish is that, will the tenant who plans on subletting part of the premises be showing this rental income as part of his "business income" or will he be declaring it sepatrately as pure "rental income"?
If he includes it as part ofg his business income, he could find himself getting into various problems regarding tax and VAT - if he doesn't go about things the right away.
If he includes it as part ofg his business income, he could find himself getting into various problems regarding tax and VAT - if he doesn't go about things the right away.
Are you getting an enclosed area or just sharing with the other guy?
If you are not getting exclusive possession (so a separate area that nobody else can access etc. etc.) then a licence is the right approach.
A licence will be cheaper for the LL's solicitor to produce and probably less contentious in its content.
I'm not sure if you've said already but does your LL own the premises or does he lease?
If you are not getting exclusive possession (so a separate area that nobody else can access etc. etc.) then a licence is the right approach.
A licence will be cheaper for the LL's solicitor to produce and probably less contentious in its content.
I'm not sure if you've said already but does your LL own the premises or does he lease?
The area I'm looking to rent isn't divided, there is common access to toilets in my part of the unit. I'm happy to work on that basis, but I need some kind of agreement so I can't be turfed out after six months of doing business, or whatever.
The occupier apparently leases the whole unit. Today I'm going to pick up an example licence that he wants to work with.
I really appreciate the help, guys.
The occupier apparently leases the whole unit. Today I'm going to pick up an example licence that he wants to work with.
I really appreciate the help, guys.
A licence is more appropriate then as you don't have exclusive occupation. You may well find that the licence provides for 28 day notice of termination on both sides which you might want to negotiate on if you want some certainty.
I wouldn't be too worried about your LL not disclosing the subletting to his LL in this market it's pretty common and the head LL would often rather not know what is going on. They would usually rather that their tenant carried on paying the rent and if subletting helps that then they won't really care as long as you aren't gaining any security of tenure (which you won't be under a licence). If you/they tell the head landlord he'll have to do something about the subletting to avoid prejudicing his rights under the lease.
I wouldn't be too worried about your LL not disclosing the subletting to his LL in this market it's pretty common and the head LL would often rather not know what is going on. They would usually rather that their tenant carried on paying the rent and if subletting helps that then they won't really care as long as you aren't gaining any security of tenure (which you won't be under a licence). If you/they tell the head landlord he'll have to do something about the subletting to avoid prejudicing his rights under the lease.
Piglet said:
A licence is more appropriate then as you don't have exclusive occupation. You may well find that the licence provides for 28 day notice of termination on both sides which you might want to negotiate on if you want some certainty.
I wouldn't be too worried about your LL not disclosing the subletting to his LL in this market it's pretty common and the head LL would often rather not know what is going on. They would usually rather that their tenant carried on paying the rent and if subletting helps that then they won't really care as long as you aren't gaining any security of tenure (which you won't be under a licence). If you/they tell the head landlord he'll have to do something about the subletting to avoid prejudicing his rights under the lease.
That clears things up a lot. Many thanks.I wouldn't be too worried about your LL not disclosing the subletting to his LL in this market it's pretty common and the head LL would often rather not know what is going on. They would usually rather that their tenant carried on paying the rent and if subletting helps that then they won't really care as long as you aren't gaining any security of tenure (which you won't be under a licence). If you/they tell the head landlord he'll have to do something about the subletting to avoid prejudicing his rights under the lease.
It turns out the occupier's lease rules out subletting. I can't get an answer from the LL for two weeks. Anybody know a way around subletting if the LL is expected to access the premises periodically? Maybe set up a shell with the occupier as a silent non-voting shareholder and run it that way? Complicated, but might be worth it.
nsa said:
It turns out the occupier's lease rules out subletting. I can't get an answer from the LL for two weeks. Anybody know a way around subletting if the LL is expected to access the premises periodically? Maybe set up a shell with the occupier as a silent non-voting shareholder and run it that way? Complicated, but might be worth it.
I really really wouldn't have asked for consent. It's the tenant's risk (your landlord) they are the ones in breach of their lease and that could expose them to a risk of forfeiture BUT what LL is going to evict a tenant in this market unless they aren't paying their rent in which case you'd be in trouble anyway. If you're only looking for six months (which I think is what you said?), I'd just have got on with it. I'd be fairly sure that the LL really didn't want to know about this, much easier for the LL just to allow the tenant to get on with things without the LL knowing.
I doubt the superior LL inspects the premises regularly, it's not usual for commercial leases.
I don't really understand the structure you're suggesting, if you're suggesting that some other entity is tenant then the LL would have to permit the assignment of the lease from the existing tenant to the shell company (assuming that assignment is permitted)and I doubt the LL would permit the assignment to a shell company without guarantees.
nsa said:
Agreed the shell isn't a great solution, I'm just trying to think of a way round the problem. The occupier raised the subletting issue. I suspect he may be trying to stall or create a problem where there isn't one.
There is a problem for him as he is the one in breach of his lease if the LL finds out, much as I doubt the LL will do anything it does put him in breach. It's much less of a problem for you! If he has raised it I would suggest he's going to back out of it the subletting as his lawyer will be telling him it's a risk - it probably depends how much he needs the money!
Did you say that his lease prohibits underletting or that it requires the LL's consent?
Most industrial property leases would exclude underletting in part (regardless of LL's consent). Depending on the length of the occupation and occupation structure it could create an overriding interest in the property which is why its generally prohibited. I agree a landlord will be reluctant t to loose a tenant in the current climate but technically it is a breach, and thus has an impact on the tenant.
Did you say that his lease prohibits underletting or that it requires the LL's consent?
The occupier just said he can't sublet so I suspect it's prohibited, but he is going to speak to the LL when he gets back from holiday in a couple of weeks. What's odd is that initially he agreed to a lease, then said he wanted a licence and now says he's not allowed to do either.
The occupier just said he can't sublet so I suspect it's prohibited, but he is going to speak to the LL when he gets back from holiday in a couple of weeks. What's odd is that initially he agreed to a lease, then said he wanted a licence and now says he's not allowed to do either.
Gassing Station | Business | Top of Page | What's New | My Stuff